Rewarding Sales Reps Through a Commission Plan:When is it the Right Plan to Use?
October, 2013
Prepared by:Jerome A. (“Jerry”) Colletti, Managing Partner
Mary S. Fiss, Partnerwww.collettifiss.com – (480) 483-1480
© Colletti-Fiss, LLC, 1999-2013
Presentation Objectives
Indicate why this is an important topic
Present features of a “true” commission plan
Describe when commission is the right plan to use
Offer tips to avoid improper use
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Notable Quote
“….we want to implement a commission plan because I want our reps to sell more….!”
Division President, Telecommunications
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Notable Quote
“…our sales people aren’t hungry enough; we need a commission plan!”
Sr. VP, Financial Services Company
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Notable Quote
“…our sales people aren’t selling the right mix of products; we need to use a commission plan!”
VP, Product Marketing, Specialty Chemical Company
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Why is the Concept of A Commission Plan So Appealing?
“Quick Fix”
Variable Cost
Immediate Return
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Misconceptions About Commission
Can’t hurt!
Results will improve quickly
It’s a simple solution!
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Commission-Strategy Mismatches:Some Illustrations
Sales Strategy Commission Plan – Good Idea, But Wrong Solution
Win new customers (in established market)
…maybe not, since products may be viewed as commodities
Reverse revenue decline …interesting, but industry overcapacity not lack of sales effort led to price war and subsequent revenue decline
Shift sales to more profitable products
… assumes sales reps can migrate buyers away from or to products
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Features of “True” Commission Plan
Fixed or variable rate
Applied to sales transaction –dollars or units
Not a “disguised” bonus (i.e., individual rates based on personalized quotas)
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Sales Models That Support Use of Commission Plan
Ideal Sales Situation
Single focus on sales volume
Sales person adds significant value to customer’s purchase decision
Uniformly high profit margins
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When Is Commission The Right Plan?Market/Customer Characteristics
Relatively new or an emerging market
Limited product portfolio
Relatively short sales cycle
“Seller-driven” purchase decision
No or unreliable sales forecast
Relatively equal territories/sales potential
Capability to track/assign sales credit exists
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Sales Environment in which Sales Reps Operate
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Four Factor to Consider when Deciding About Applicability of a Sales Commission Plan
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Four Tips on Avoiding Misuse
Explore all options
Confirm that the “sales problem” can in fact be fixed in part or total with a commission plan
Don’t compromise on required characteristics for success
Think ahead – how do we implement it; how long will a commission plan work; how will we replace it
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Summing Up:Is a Commission Plan the Right Incentive Solution?
It depends; what’s the point?
– Typically, commissions are pushed into situations where they don’t belong!
– Too much is expected!– However, when well-thought out and matched to the right
sales situation, they do work!
Your challenge – be persistent, don’t give in to a situation where “…if we just implement a commission…” is the mind-set!
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